A merger between Whole Foods and Wild Oats on its face would not seem to carry much attention in the satellite radio sector, but that has been turned on its ear over the past week, as a Federal Appeals Court upholds a decision allowing the merger by U.S. District Judge.
Last week Judge Friedman ruled against the FTC and their argument that the market place be defined narrowly as organic foods merchants. This parallel runs close to the core issue in the satellite radio merger. The definition of the marketplace and the competitive landscape.
With regards to the Sirius and XM merger, many had at one point used the failed Direct TV and Dish merger attempt years ago as a measuring stick for this merger. While it may seem a natural comparison, there were some stark differences between the two, and this has been well illustrated in FCC filings by Sirius, XM, Public Knowledge, and others.
Today, the initial Judges ruling was upheld by a Federal Appeals Court consisting of a three member panel. In their ruling the panel acknowledged that the FTC had raised some questions, but failed to prove that the initial judges decision was flawed.
In the initial ruling last week, Judge Friedman rejected the FTC claim that Whole Foods and Wild Oats compete in a narrow market of "premium, natural and organic super markets." The judge mentioned several other grocery retailers that also carry organic foods, and further pointed out that 60% of the organic foods sold are bought in more traditional markets.
Sirius and XM have claimed that they compete in a wide audio entertainment market that includes not only terrestrial radio, but i-Pods, Internet radio, and cell phones that carry audio content. Looking only at the "radio" market, Sirius and XM account for less than 4% in total. Include Internet radio, i-Pods, and cell phones, and that percentage drops even lower.
The announcement today buy the three judge panel, confirming Judge Friedman's decision, may well bolster the sentiment on the Sirius and XM merger. Surly, the DOJ and FCC are aware of the arguments in the Whole Foods deal, and that this new precedence could weigh on their decision.
This news also must bolster the strategies of XM and Sirius. Many thought that if the merger was denied, that Sirius and XM would accept the decision. Now, seeing that four judges have sided with broader market definitions, the satellite radio carriers could well feel more confident in putting up a strong fight should the initial decision not go their way.
This news was released after hours today (August 23rd). What tomorrow will bring in the SDARS sector is yet to be determined, but this news will add to what appears to be a growing sentiment that this merger has legs.
Many analysts such as the highly respected Robert Peck of Bear Stearns, have cited that, on merits, the Sirius and XM merger should pass. Peck has noted for some time that the wild card was with politics. With courts now seeming to be willing to accept broader definitions of markets, some of the political pressures may have lost some weight in the process.
One thing readers can be sure of is that both the DOJ and FCC will be very thorough in their decision, and that this will take time. These regulators want to ensure that they take all required steps, and cover all of their bases when they make a decision. Part of that process is identifying the marketplace that exists today, as well as into the future.
Position - Long Sirius, Long XM, No Position Whole Foods, Wild Oats